Personality, IQ, and Lifetime Earnings

48 Pages Posted: 14 Jun 2014

Abstract

Talented individuals are seen as drivers of long-term growth, but how do they realize their full potential? In this paper, I show that even in a group of high-IQ men and women, lifetime earnings are substantially influenced by their education and personality traits. I identify a previously undocumented interaction between education and traits in earnings generation, which results in important heterogeneity of the net present value of education.Personality traits directly affect men's earnings, with effects only developing fully after age 30. These effects play a much larger role for the earnings of more educated men. Personality and IQ also influence earnings indirectly through educational choice. Surprisingly, education and personality skills do not always raise the family earnings of women in this cohort, as women with very high education and IQ are less likely to marry, and thus have less income through their husbands. To identify personality traits, I use a factor model that also serves to correct for prediction error bias, which is often ignored in the literature. This paper complements the literature on investments in education and personality traits by showing that they also have potentially high returns at the high end of the ability distribution.

Keywords: personality traits, social skills, cognitive skills, returns to education, life-time earnings, Big Five, human capital, factor analysis

JEL Classification: J24, I24, J16

Suggested Citation

Gensowski, Miriam, Personality, IQ, and Lifetime Earnings. IZA Discussion Paper No. 8235, Available at SSRN: https://ssrn.com/abstract=2450426 or http://dx.doi.org/10.2139/ssrn.2450426

Miriam Gensowski (Contact Author)

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

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